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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
Shri Anil Kochar, Advocate अपीलाथ� क� ओर से/By Appellant Shri S.Dasgupta, Addl. CIT-DR ��यथ� क� ओर से/By Respondent 22-03-2018 सुनवाई क� तार�ख/Date of Hearing घोषणा क� तार�ख/Date of Pronouncement 14-06-2018 आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-2, Kolkata dated 08.12.2016. Assessment was framed by DCIT, Circle-6(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.03.2016 for assessment year 2013-14. The grounds raised by the assessee per its appeal are as under:- “1. For that the Ld. CIT(A) erred in dismissing the appeal of the appellant on the alleged grounds:
2. For that the Ld. AO having not discussed the matter relating to disallowance u/s. 14A/Rule8D, the Ld. CIT(A) ought to have accepted the contention of the appellant about non-applicability of provisions of Sec. 14A.
M/s Daulat Finleae Pvt. Ltd. Vs. DCIT, Cir-6(1) Kol. Page 2 3. For that the Ld. CIT(A) ought to have properly considered the factual aspect of the matter relating to the applicability of the provisions contained in Sec. 14A and ought not to have confirmed the order of the AO who made disallowance of Rs.39,38,109/- u/s 14A read with Rule 8D on the alleged grounds.
For that the Ld. CIT(A) ought to have properly taken into consideration appellant’s submissions that the appellant had received interest of Rs.1,33,24,307/- and made payments of Rs.99,03,916/- and in this view of the matter, the Ld. CIT(A) ought to have appreciated the contentions raised by thee appellant before the Ld. CIT(A).
For that, without prejudice, the disallowance worked out at Rs.39,38,109/- by the AO u/s 14A/Rule 8D was heavy and excessive.
6. For that further grounds of appeal
may kindly be allowed to be taken at the time of hearing of the appeal.” Shri Anil Kochar, Ld. Advocate appeared on behalf of assessee and Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue.
2. Ground No. 1 to 6 are inter-related and therefore being taken up together. Solitary issue raise by assessee in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹39,38,109/- u/s 14A r.w.s Rule 8D of the Income Tax Rule, 1962.
3. Briefly stated facts are that assessee in the present case is a private limited company and engaged in finance and investment business. The assessee during the year has earned dividend income of ₹37.36 lakh only which was claimed as exempted income u/s. 10(34) of the Act. The assessee in its computation of income has made the disallowance of ₹4,69,748/- as expenditure related to such exempted income However, AO observed that disallowance has been made by assessee merely on estimation basis and it has not been disallowed as pr the Rules laid down under Rule 8D of the IT Rules. Accordingly, AO invoked the provision of Section 114A r.w.s. Rule 8D and made the following disallowance:- i) direct expense Nil ii) interest expense Rs.34,68,361 iii) indirect expense Rs. 4,69,748 Rs.39,38,109/- In view of above, AO made the disallowance of ₹34,68,361/- (39,38,109 – 4,69,748) and added back to the total income of assessee.
M/s Daulat Finleae Pvt. Ltd. Vs. DCIT, Cir-6(1) Kol. Page 3 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that it has made investment in shares for ₹9,47,1,533/- only out of its own fund amounting to ₹15,16,28,602/- and no disallowance of interest under Rule 8D(2)(ii) on IT Rules, is warranted.
The assessee also submitted that it has made the disallowance under Rule 8D(2)(iii) for ₹4,69,748/-. Therefore the allegation of AO regarding disallowance has not been made by assessee as per the Rule 8D of the IT Rules is not correct. However, the Ld. CIT(A) disregarded the submission of assessee confirmed the AO by observing as under:- “… … I have considered the submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. The AR has only raised the issue of netting of the interest. The appellant made payment of interest of Rs.99,03,916/- whereas the appellant has an amount of Rs1,35,24,302/- as receipts. Accordingly, he argued for netting o f interest for disallowance of expenses u/s. 14A. The order of the AO and submission as filed by the appellate during the appellate proceedings does not suggest that this issue was raised before the AO during the assessment proceedings. The reliance is placed in the case of India Bulls Financial Services Ltd. vs. DCIT, wherein it has held that the fact that the Assessing Officer did not expressly record his dissatisfaction with the assessee’s working does not mean that he cannot make the disallowance. The AO need not pay lip service and formally record dissatisfaction. It is sufficient if the order shows due application of mind to all aspects. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons of he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A(2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute n both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulate as it were under Rule 8D because of Section 14A(2). Keeping in view of above, the order of the AO is upheld and this ground of appeal is dismissed.” Being aggrieved by this order of Ld. CIT(A) assessee has come up second appeal before us.
M/s Daulat Finleae Pvt. Ltd. Vs. DCIT, Cir-6(1) Kol. Page 4 5. Ld.AR before us for the assessee filed audited financial statement which is placed on record and demonstrated that assessee’s own fund exceeds the amount of investment. Therefore, no disallowance on account of interest expense can be made under Rule 8D(2)(ii) of IT Rules, 1962.
On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
We have heard the rival contentions and perused the materials available on record.
In the present case the Revenue has not challenged the submission of the assessee that its own fund exceeds the amount of investment made in the shares. As per the submission of the assessee its own funds are amounting to Rs.15,16,28,602.00 whereas investments in the shares are only of Rs.9,47,11,533.00.
In view of above a presumption can be drawn that the assessee has made the investment in shares out of its own fund. In this connection, we find support and guidance from the judgment of Hon'ble Bombay High Court in the case of Reliance Utilities and power Ltd. reported in 3143 ITR 340 wherein it was held as under:- “The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal.” ‘ Similarly we also rely on the judgment of the hon'ble Bombay High Curt in the case of CIT vs HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- “Where assessee’s capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest- free funds available with Assessee and no disallowance was warranted u/s. 14A.”